Cloud reflection


Are you thinking about taxes and cloud computing?

Deloitte on Cloud blog

First, this is not a blog about taxes. I’m not a tax accountant, and that’s not my area of expertise. However, taxes affect us all, and the decisions we make in business often impact our tax responsibilities. This is a blog about the tax implications to consider when looking at the technology of cloud computing.

July 31, 2018

A blog post by David Linthicum, managing director, chief cloud strategy officer, Deloitte Consulting LLP

What seems to be most at issue, tax-wise, is the fact that we give up some depreciation deductions when using cloud computing. This due to the fact that we no longer need to buy and maintain as much hardware, software, and data center space.

While the use of cloud computing would seem like a no-brainer from the point of view of cost savings, there are tax numbers that need to be run as well. Indeed, I’m seeing use of cloud computing in some organizations result in a diminished ROI. Given the timing of the cloud migration and the decommissioning of hardware, this has actually cost some enterprises more money, all things considered. Of course, the amounts vary a great deal, depending upon the type of business, country of residence, etc. These are just general observations.

If there is a cloud migration business analysis in your future, here are a few suggestions:

  • First, consider taxes. Many of those in the world of technology don’t factor in the non-obvious costs, such as taxes, people, regulations, etc., and instead focus on the short-and long-term direct cost savings. In the world of cloud computing, you may be able to save 30-40 percent in ops costs for the first two or three years, but you may be giving up a deprecation deduction that negates those savings. You need to find that out. For most business cases I’ve done for cloud computing, I need to force the tax questions into the analysis.
  • Second, do a dynamic ROI analysis. Model for change. Changes in our tax position need to be part of that model over time, including changes in the tax laws and other regulations.
  • Finally, consider all tax issues. Get the help you need so that you put all the tax items on the radar that need to be considered for cloud computing. The most common mistakes don’t seem to be made on the miscalculation of tax costs, but by simply missing issues that need to be considered.

Taxes are not exciting in the world of technology, but more and more I’m finding that I need to team up with lawyers, CPAs, and other professionals to get the visibility that clients need to understand all aspects of the business and its use of technology such as cloud computing.

Cloud reflection

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